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A Perfect Storm Short Sale Denied
With the exception of an FHA short sale, I can’t recall the last time this Sacramento short sale agent lost a short sale. Every short sale I do in Sacramento pretty much closes as long as the seller doesn’t give up. It is extremely unusual and rare for a bank to deny a short sale these days. I’ve been selling and negotiating short sales since 2006, so that’s about 8 years, and back when short sales started, maybe half were accepted. Not so today.
Today, it’s about 100% that close, and I’ve closed hundreds of short sales. Because banks generally prefer a short sale vs foreclosure. Properties are most likely in better condition, which helps them sell for more money; and there is a pool of buyers who believe a short sale is a good deal even when it’s not.
To close a short sale, the transaction needs to be a round peg that fits into a round hole. Follow the rules and the short sale is approved.
To over simplify, the basic rules are this:
- Seller must qualify
- Sales price is market value
Sellers often ask me how I know their short sale will be approved, and it’s based on those two factors. But sometimes the investor guidelines stipulate that the bank cannot do a short sale. PSA agreements can make it more profitable for the bank to foreclose. We don’t have access to the PSA agreements as mere real estate agents, so we won’t know for certain whether the PSA will kick out the short sale until a package has been submitted and reviewed.
We can get around that problem by submitting for a HAFA short sale. Most of the banks participate in the HAFA short sale program, as long as the investor is not a government entity. Government-sponsored entities have revamped their own program versions. But when a bank does not participate in HAFA in 2013, that is probably a red flag.
You would think the bank could disclose upfront. You know, read the guidelines and say nope, don’t bother submitting. That would be too intelligent and logical. Two words that don’t describe the American banking system. Instead, they put everybody through the song and dance before slamming hopes.
Fighting HUD in an FHA Short Sale
It’s sort of surprising in a way but many home buyers in Sacramento do not know what kind of loan they have, especially after a few years pass since closing. From their point of view, it doesn’t matter. They still owe all of that money for decades. Whether their loan was FHA or conventional or VA, who cares? But it makes a difference if the seller needs to do a short sale. The rules are very different.
Whenever this Sacramento real estate agent approaches a short sale, the very first thing I do is figure out the seller’s type of loan. If the loan is FHA, for example, there is no requirement to submit an offer with the FHA short sale request. That doesn’t mean a seller might not want to submit an offer, as there are reasons for it, providing the buyer is willing to wait, but it’s not a requirement and, in some situations, it can be a much easier process without an offer.
We had a short sale recently that could not close. It was the first short sale in a long, long time that had been rejected without hope of any further action. Ordinarily, I do not give up; I continue the fight and, if the bank says no, I reconfigure the short sale package and resubmit. Eventually, the banks say yes. But when HUD says no, it means no. To protest would mean fighting the department of Housing and Urban Development.
One can request a variance and build a very strong case. But after that case is presented, it’s sort of like getting an opinion from Superior Court. One could appeal but an agent can’t do it. It takes a lawyer to do it at that level.
Sometimes, clients forget that Sacramento real estate agents are not lawyers. We might seem that way, but we do not have a law degree, we cannot give legal advice, and we cannot practice law, even if our shoes are nicer.
In this particular situation, even though the home was not habitable, HUD rejected a variance request. This was a round peg trying to fit into a square hole. Apparently, there is nothing in HUD guidelines that deal with homes that are uninhabitable. Because the bottom line is when you’ve got Lily Tomlin in her telephone operator role running HUD, the answer tends to be no, especially when they can’t figure it out.
How to Get a Short Sale Credit Report as Paid in Full
Up until now, it has been very tricky and almost impossible for a seller to immediately buy a home in her own name after closing a Sacramento short sale unless the short sale credit report shows paid in full. There were a few other ways to do it such as having a high FICO and big down payment, and working with a smaller bank that funds portfolio loans, but if a short sale seller has a high FICO and a big ol’ wad of cash, the short sale bank probably won’t grant the short sale. It has been like a Catch-22.
There is one way around it. Very few real estate agents seem to know about it because their bedime-reading material is not changes to government short sale programs. It’s how to get a short sale credit report as paid in full. I’ve read the recent HAFA Supplemental and know that this change exists, but I haven’t really tried it until now. This is the coolest thing ever. To qualify, the seller cannot have a Notice of Default filed. It is preferable to be current on the mortgage payments, but if a seller is behind a payment or two, it’s not the end of the world. Not every short sale bank investor will allow a seller to be current but many have loosened guidelines to allow for it.
Which makes sense when you think about it, even though banking rules don’t always make sense to us mere mortals. It makes sense that the investors would prefer to get some money than no money, but that would mean somebody was actually looking out for the investors and not just pocketing big ol’ wads of cash through the PSA agreement. When a seller comes to the bank to ask for a short sale and plans to continue making payments, you’d think a bank would not have to say: Sorry, we don’t want your stinkin’ money. Stop making your payments, go into arrears, and then we’ll short sale it. Because that’s ludicrous. But like I said, banking rules don’t always make sense until somebody yells out: Hey, what’s that man doing behind the curtain?
The new HAFA short sale guidelines allow for a different type of reporting of the satisfaction of mortgage for less than the full balance to the credit bureaus. If there is no Notice of Default filed, the short sale credit bureau reporting is PAID IN FULL. Not paid in full for less than agreed, no, no, no, none of that garbage. Paid in FULL. Do you know what Paid in Full means to a person’s credit report? It means the loan was paid off. Period. There is no derogatory credit. If there is no derogatory credit, there is no hit to the credit score.
Paid in full for a short sale credit report is huge. This is humongous. This is incredible. About time, too. If you’re thinking about doing a short sale in the Sacramento area, call your #1 Sacramento short sale agent, Elizabeth Weintraub, at 916 233 6759. I am a HAFA Certified Specialist.
The Worst Sacramento Short Sale
A bouquet of daisies can brighten up just about any old dreary situation — whether it’s a Sacramento short sale that’s driving you nuts, the fact you’re living back home with your parents as 36.4% of Sacramentans adults aged 18 to 31 are according to 2011 Census Bureau data, or maybe you feel too sick to go to work because you’re just plainly sick of work. I have a lot of daisies growing in my yard in Land Park, which I didn’t plant, but they’re thriving in the back yard gardens just the same. So, I hope you like the photo I shot of the daisies I picked.
Daisies perk me up. You can’t help but smile when looking at them. Daisies are probably the happiest flower there is. Even when they’re twisted and growing weirdly to reach upwards toward the sun because some person, I’m not saying who, has not weeded the crap around them, daisies are still joyful. Dancing. Spreading glee.
Unlike the poor soul who called yesterday about doing the worst short sale ever. I looked up the property in the tax records first because that tells me a lot about the seller, the property and what’s happened over the years. Let’s say this condo is in Roseville. It was enough to ascertain that the homeowner had probably been involved in a loan modification for a while. Yup, I was right about that. Plus, he last made a payment 2 years ago. Those things are actually pretty good aspects for a potential short sale in Sacramento.
On the other hand, an interrupted bankruptcy not yet dismissed, another bankruptcy petition on the horizon and a hard-money second mortgage without a loan number, which has most likely been charged off, are not good things. A homeowner can’t do a short sale when a bankruptcy is pending. His Sacramento short sale agent can’t negotiate a second mortgage without a loan number. Hard-money lenders play hardball, if they play at all due to the nature of recourse. And, let’s not even talk about the potential for federal income tax liens or that the homeowner’s association is threatening to sue for $25,000.
Buyers will pay for a lot of things in a short sale. Some buyers will even pay delinquent HOA dues on behalf of the seller, but it’s got to make financial sense. I finally had to ask the caller if he would like to look at the situation objectively. I mean, let’s just isolate one aspect such as the delinquent homeowner dues. First, I don’t know how a homeowner’s association can claim it is owed $25,000 when the dues are around $300 a month. Are they demanding a percentage of equity?
But let’s just say that number is correct. This person’s Roseville condo is worth about $150,000. So the question is if a buyer is paying $150,000 in cash to buy this condo, is there an incentive to pay an additional $25,000? The Sacramento market is hot, but it’s not that hot. The seller agrees. He has questions he needs answers to and more information before choosing a course of action.
Actually, his short sale could be worse. I can think of more things that would make it worse, but why make myself or anybody that miserable? If you’re wondering about a short sale or maybe just selling a home in Roseville, you can call Elizabeth Weintraub at 916 233 6759, and we’ll analyze your situation together. Every short sale is different. Even the worst ones.
*Some of the facts have been changed to protect the homeowner’s privacy.
The Rules for an FHA Short Sale
All short sale transactions in Sacramento, especially the FHA short sales, are handled from the perspective of the short sale agent and thus limited by that agent’s experience and education. The more an agent learns, the more an agent realizes in horror what the agent doesn’t know, or at least one would hope it works that way. But some agents take a 3-hour class and proclaim themselves to be certified short sale experts without closing any short sales.
Moreover, short sale seminar classes seem to be gearing up at the moment, even though short sales are on the decline. To sell those short sale classes, the promoters proclaim that banks want to hire short sale agents to move underwater inventory but that’s not entirely true. As long as homeowners are making payments and unlikely to default, the bank doesn’t care. Also, banks have no shortage of real estate agents at the bank’s disposal.
Agents can be such suckers. I know this because I worked in the real estate seminar business some 35 years back. That well known real estate guru is dead now.
I audited a short sale class a few days ago and was astonished at the crap thrown out. Some of the information touted as fact was completely wrong. I won’t name the class except to say that I understand agents have few places to go to get this information and, if one is starving to death, even a handful of sand tastes good.
A big deficiency exists in the FHA short sale field. I see this by the questions asked online from frightened buyers. An FHA short sale happens when the existing financing is an FHA loan and the sale at market value is underwater. HUD (Housing & Urban Development) has set forth very specific requirements and guidelines. The first is to obtain the Approval to Participate in the short sale program outlined by HUD. To get that ATP, homeowners must be first be examined and evaluated to see if they fit other foreclosure alternative programs offered through HUD.
This happens even if there are no other programs that fit that homeowner’s situation. This happens even if the homeowner can no longer live in the home because all of the interior walls have been ripped out and the plumbing stripped. After evaluation of such a situation, which sounds completely insane, then the servicer will request a variance. You just have to know the rules and follow them. The short sale guidelines make sense to HUD. The strict rules don’t have to make sense to anybody else.
FHA also offers loan modifications, for example, only to owner occupants. If a potential seller does not occupy the home, the loan modification will not be granted. No investor loan modifications. End of story.
Yet, that did not stop a homeowner who rented out his home in Sacramento from trying. Even after I sent him the particular HUD guidelines, he still hoped they might give him a loan modification. Who am I to stomp on a homeowner’s desperate attempts to keep a home? I won’t squash those dreams, even if the dream is impossible. It’s not my house. Besides, the owner, even though he was not an owner occupant and has long since moved away, still needs to be evaluated for other foreclosure alternatives.
In my most recent Bank of America FHA short sale, we waited to receive the go-ahead on the Approval to Participate before putting that Sacramento short sale on the market and obtaining a short sale offer. It is the sensible and smart way to do an FHA short sale with Bank of America. Even so, it still took another 90 days to obtain short sale approval. And I’ve been working on short sales since the market crashed in 2005. I’ve closed hundreds, more than a 120 short sales last year alone. This Sacramento short sale agent is always looking for ways to streamline the short sale process.
If you’re sitting in a FHA short sale in Sacramento that seems to be dragging out and going around in circles, you probably have a listing agent on the job who doesn’t close very many FHA short sales. Experience is everything in this business.
